Assessing the impact of MiFID II in the North American market

A closer look at the top three challenges posed by MiFID II on North American asset managers

From an operational view, MiFID II makes it very clear that there will be a significant volume of data that needs to be aggregated and reported. It presents an opportunity for firms to take a step back and look at the technology stack to assess where the cracks are. Breaking away from the silos of front, middle and back offices, and embracing a single source of data across the whole office will be key to the firm’s operational efficiency and ultimately, growth.

In terms of geography, MiFID II is particularly important for North American firms, not just for its far reach into their global business activities but also on a domestic level. It is clear that with the modernization rule coming into play in June 2018, the SEC is watching MiFID II with anticipation. If it does what it says on the tin, a similar regulation may well be adopted directly by domestic authorities.

Let’s take a closer look at the top three challenges posed by the regulation, as per a recent SimCorp poll conducted during a webinar on this very topic.

Complying with Transaction Reporting requirements (56% said this was a key challenge)

For the first time, North American asset managers headquartered or with a subsidiary in the EU will need to commit to two new reporting regimes; transparency and transaction reporting. Whilst transparency reporting is far less complex it has its own challenges through the need to do real-time reporting. But it is the transaction reporting element that is proving the major concern.

Transaction reporting is not a new concept to asset managers, being a feature of both EMIR and Dodd Frank. However, in MIFID II, the requirement is to provide 65 fields of data under T+1, which is estimated to affect approximately 90% of all trading. Implementing transaction reporting will be especially troubling for some North American managers, given certain technology infrastructure problems such as legacy technology. Furthermore, unlike MiFID I, this reporting is difficult to outsource.

Those North American firms who trade through European Multilateral Trading Facilities (MTF) will be hit by indirect regulatory requirements, mostly by the need to provide a LEI (Legal Entity Identifier). Many North American institutional investors will not yet have a LEI code and it could come as a surprise that their investment manager requires this code to continue trading on their behalf on EU venues.

Understanding New Market Structure (50% said this was a key challenge)

For many, the struggle is gaining clarity around the new market structure. Other than exempted entities i.e. pension funds, sovereign wealth funds or insurance firms, MiFID II imposes new trading rules for equity and derivative instruments. Those instruments that are deemed liquid will need to be traded on existing traditional Regulated Markets (RMs), the more recent MTFs, or the new trading venue type of Organised Trading Facility (OTF). It will no longer be possible to execute liquid instruments in a bilateral OTC trade with the broker. This will of course have a major impact on the way in which firms are set up to operate. Furthermore, the sheer volume of asset classes and instruments concerned, makes it clear that the implementation extends far beyond a simple database project. Lending itself towards a multi-asset class approach.

Ability to gather and aggregate accurate data (45% said this was a key challenge)

It is becoming increasingly clear that traditional workflows across best of breed solutions and legacy technology approaches to compliance will not be able to keep up with mounting regulation and investor demands for transparency. Data has always been a challenge more than an opportunity because of the infrastructure most firms are battling with; from data lineage and data sharing problems between point solutions, to manual reconciliation and overreliance on spreadsheets. MiFID II requires information that often is not available in the back-office systems mostly used for sourcing regulatory reporting. Instead it needs to be derived from information in the Front Office systems, adding a new layer of complexity to the data management framework. Many firms use proprietary systems to support their Front Office and will require complicated change management processes to integrate these new demands.


Of these three challenges, complying with Transaction Reporting is by far the biggest. To comply, firms need to embrace a single source of data across the whole office – something that is achievable with an investment book of records (IBOR). An integrated and central data source is also critical to consistently achieve a high quality of reporting.

It should be expected that national regulators will issue much more and higher fines under MiFID II than they did under MiFID. While many hope the first year to be a leniency period, in the long-term investment managers need to provide flawless reporting to avoid fines. And since the reporting requirements are so complex it is very challenging to satisfy the regulator without having an integrated data management strategy for the whole office in place.